Subnostr

The Chinese want to buy oil and commodities in yuan. They are the world's factory, so other countries can use the yuan to buy stuff from China directly. If these oil exporters have remaining yuan, they are able to either keep the yuan or settle in gold. (The Chinese exchange the yuan for gold). The currency doesn't have to be pegged to gold for it to become more credible because of China's gold holdings. Their goal is to be able to buy commodities and oil in yuan and de-dollarize Asia.

sms 2y ago

Wanting and being abe to do it are obviously different.

To make it more credible, Chinese have to make Renminbi freely convertible, remove capital controls, and create a credible sovereign debt market equal to US Treasuries.

None of that is imminent. How much CNY and Chinese government bonds are you holding, compared to USD?

Gold holdings have no direct connection to curency value or credibility, as you explained; it’s indirect, at best.

Neither is it clear how much CNY they exchange for gold, because they don’t audit their gold holdings and publicise that either.

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Buck Fonds 2y ago

I don't hold any CNY, but I also don't import stuff directly from China.

Telling people to keep their reserves in CNY while preventing them from investing in China or taking their currency abroad is indeed difficult.

If you have too much CNY because you're one of the few countries that runs a trade surpluss with China (e.g. Saudi), you can show up in Shanghai, Hong Kong or London with offshore CNY and demand physical gold settlement which largely solves this problem.

The gold is then sourced from 2 places most of the time (The US or the UK) because mainland China gold cannot leave China.

The US can then deliver the gold and:

1. Not let the price of gold rise by allowing paper gold market leverage to rise in London and NYC (Deliver the gold but sell more paper gold to keep gold's price from rising). This prevents gold purchases from devaluing the USD in gold terms.

2. Deliver the gold and let gold's price rise as a result of the purchases. This devalues the USD via a rising gold price.

If the US/UK refuse to deliver the gold or run out, then China and Russia can reset the gold price to a higher level and devlue the USD.

It seems to me like when gold rises in USD terms, it makes it more and more obvious that the currency is being debased and the US' creditors won't get repaid in real terms.

As greenspan said: "Gold is the canary in the coal mine. It signals problems with respect to currency markets."

The US exports mostly dollars, bonds and weapons, whereas China exports a lot more stuff.

Gold is recognized as a store of value (money), whereas USD and CNY are currencies (medium of exchange but not store of value).

The big gold inventory thus lends a lot of credibility to their currency.

However, it is indeed true that they don't audit their gold holdings and the reports and underestimates.

sms 2y ago

This all sounds reasonable, but argues in favour of #gold, not #CNY credibility.

Neither is there evidence that Americans , UK, or Chinese still care about their curency value in real gold terms:

http://pricedingold.com/china/

http://pricedingold.com/pound-sterling/

http://pricedingold.com/us-dollar/

The Americans clearly don’t care!

Speaking of oil exporters and Asia gold exchanges, probably the most honest physical gold delivery contract in the world - #Dubai Shariah Gold - is still denominated and settled in USD - not even local AED, which is also still pegged to USD!

https://www.dgcx.ae/products/shariah-gold

Just a week ago, at Dubai airport, i could pay with #AED or #USD. Even though they could take the CNY to #Shanghai and get physical gold, CNY notes not an option. Same everywhere else i go in the world.

The most revealing observation to me is that anyone I encounter making the case for growing credibility of BRICS currencies through gold, upon inquiry, turns out not to be holding ANY of those currencies, much less government bonds from which those fiat originate!

That’s after BRICS currency has been threatened at least 14 years now, including gold backing.

If i believed the argument, i would be frontrunning markets through long duration BRICS bonds! Yet, they don’t risk leading by example.

Suggests that they are just repeating popular YouTube/podcast click-bait narratives, which they don’t actually believe enough to have skin in the game.

I live in Asia. From Dubai to Philippines, there’s not a hint of dedollarisation here, and rather a USD shortage, though not as critical as in Africa. I see more JPY exchanged , than CNY.

No one i know is even talking about going to Shanghai to buy, much less store gold, given how credible , transparent and trustworthy the Chinese leadership, CNY, capital control and gold export ban system are.

That’s what #Singapore is for now, even for mainland Chinese.